Sullivan given 5-year term in WorldCom case

Ex-CFO's sentence is less because of cooperation

Former CEO Ebbers got 25 years

Sentences may influence future pacts, experts say

August 12, 2005|By Laura Smitherman | Laura Smitherman,SUN STAFF

If putting WorldCom Inc.'s head honcho Bernard J. Ebbers in prison for perhaps the rest of his life sends a message to Corporate America to clean up its act, legal experts say the lighter sentence handed down yesterday to his right-hand man, Scott Sullivan, sends another message to wrongdoers: cooperate.

Sullivan, WorldCom's chief financial officer under Ebbers until an $11 billion accounting fraud drove the telecom giant into bankruptcy, was sentenced to five years in prison yesterday. Sullivan had been the star witness in the trial against Ebbers, who was sentenced last month to 25 years in prison - the toughest sentence yet in the wave of corporate scandals.

"I stand before you today ashamed and embarrassed," Sullivan told U.S. District Judge Barbara Jones yesterday in New York.

As a parade of executives and their underlings at Enron Corp., Tyco International Ltd. and other disgraced companies enter courtrooms, the WorldCom case underscored the balance that judges must strike between rewarding a defendant's cooperation with prosecutors and punishing those who carried out the crime.

If too lenient, legal experts say, judges could dangle a carrot in front of witnesses to say what prosecutors want. If too harsh, judges take away the incentive for insiders to come forward.

The jury is out, in the legal community at least, as to whether that balance was struck in the sentencing of Sullivan. Nonetheless, attorneys said the case has the potential to influence future agreements with white-collar criminals, as prosecutors continue investigations of executives at Qwest Communications, another telecom company, and the accounting firm KPMG LLP.

"It shows that cooperation is the coin of the realm," said Thomas C. Newkirk, former associate director of enforcement at the Securities and Exchange Commission who is now at the law firm Jenner & Block in Washington. "It means that's the way to buy your way out of something, so to speak."

Jones, who sentenced both Sullivan and Ebbers, has made it plain how she views them. She said at Ebbers' sentencing that he "was clearly a leader of criminal activity." As for Sullivan, she said yesterday that he "was the architect of the fraud" who acted as the "day-to-day manager, if you will, of the scheme."

Portrayed as a whiz with numbers, Sullivan said he bowed to pressure from his charismatic boss, who had described himself at his own trial as a big-picture manager who knew nothing of the scheme.

Both cases had mitigating circumstances.

Jones modified the sentence of the 63-year-old Ebbers, who has a heart condition, from the 30 years called for in sentencing guidelines. She noted chief executive officer's good works in the community and other factors. With Sullivan, 43, who could have received up to 25 years in prison, the judge mentioned his wife's diabetic condition and her difficulty in caring for their daughter as part of the reason for leniency.

Praise of Sullivan

Prosecutors also stood up for Sullivan. At the sentencing, lead WorldCom prosecutor David Anders praised Sullivan as a model witness, saying that without his help, "it is likely that Mr. Ebbers never would have been brought to justice."

Sullivan "may have been No. 2 in the company, but he was the No. 1 cooperator," said Jacob S. Frenkel, a former federal prosecutor who is a partner at the Shulman Rogers firm in Rockville. "That merits a reward. It's critical for the government in these white-collar prosecutions to have someone from the inside telling what happened."

Prosecutors said that the WorldCom executives consorted to inflate revenue and hide expenses - and meet Wall Street expectations - from 2000 to 2002, when the company went bankrupt and the scandal erupted. Investors lost billions of dollars. Tens of thousands of employees lost their jobs. The company emerged from bankruptcy last year under the name MCI.

Sullivan pleaded guilty to fraud and conspiracy last year just before he was to go to trial, enabling prosecutors to zero in on Ebbers. Sullivan said Ebbers ordered him to "hit the numbers."

"It's always the objective of federal prosecutors to go as high up as the facts permit them," said Kirby Behre, a former prosecutor and partner with Paul Hastings in Washington. "If the facts lead them to the number one person, then they'll go after that person."

In this case, though, Sullivan might have been playing his same old role and was rewarded with a sentence that was too light even though he did more to perpetrate the fraud, said John Coffee, director of the Center on Corporate Governance at Columbia University.

"The danger is that Mr. Sullivan may have been too good of a pupil," Coffee said. "He was told to invent numbers and he did. He was told to give valuable testimony and he did."